States with the Highest Rates of Underwater Mortgages

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As a followup to yesterday’s post about underwater mortgages, I wanted to highlight a recent list of the states with the highest percentage of homes that are underwater. As a reminder, we’re talking here about homes that are worth less than their outstanding mortgage debt.

Without further ado, here are the top (or should I say bottom?) five states in terms of underwater mortgages:

Nevada. An amazing 61.1% of homes are underwater in Nevada. This pattern has been driven by a 60% decrease in median home value from the peak of the market. Also, 13.4% of homes in Nevada are in foreclosure or 90+ days delinquent — second only to Florida.

Arizona. Over in neighboring Arizona, 48.3% of homes are underwater. A 47.9% decline in median home values (second only to Nevada) is largely responsible for this statistic. A total of 7.1% of homes in Arizona are in foreclosure or 90+ days delinquent.

Florida. Down in Florida, 34.7% of homes are underwater due to a 30.1% drop in median home values vs. the peak of the market. In addition, 6.5% of Florida homes are in foreclosure or 90+ days delinquent.

Michigan. Up in Michigan, 34.7% of homes are underwater. In fact, our very own Matt Jabs was affected by this until he completed a short sale to get out from under his mortgage debt. Median home prices there have declined 30.1% since the peak, and 6.5% of home are in foreclosure or 90+ days delinquent.

Georgia. Finally, 33.0% of homes are underwater in Georgia, where median home prices have declined 26.0% from the peak of the market and 8.0% of home are in foreclosure or 90+ days delinquent.

Honestly, I’m not really surprised by the contents of this list, as these are the states that have suffered the most in terms of high unemployment, failed banks, etc. during the recent economic downturn.

Perhaps the biggest surprise (at least to me) is that California didn’t make the list, but guess what? They’re only one spot away, sitting in sixth place, with just shy of 30% of mortgages underwater. The balance of the top ten includes Idaho (really?), Maryland, Ohio, and Virginia.

Of course, this list just looks at overall rates, and not magnitudes. I’d be willing to bet that many people in California are typically further underwater than those in, say, Michigan due to the generally much higher real estates prices there.

While browsing the Hillsborough County Property Appraiser website, I happened to notice many entries listed under one particular owner. You can see this firsthand by visiting http://www.hcpafl.org and search for properties owned by “kted1”. Long story short, the person behind the pseudonym is the owner of Ashley Furniture – Todd Wanek. This information is available online, specifically at Corporation Wiki.

He’s buying lots of houses in Hillsborough… I haven’t checked Pasco yet but assume it’s on his agenda as well.

Similarly, an investment company “Blackstone” has apparently spent $1billion in Tampa since Septembmer, buying distressed properties with the intent to flip them after the market shows improvement.

This, in my opinion, will create an artificial rise in home sales statistics.

In 2006, after my wife and I had our first child, we wanted to purchase a home vs. continuing to live in an apartment. After finding our desired home here in Tampa FL, we met with Bank of America who wanted 20% down on the $220k property. Not having that amount available, the BoA mortgage rep told us “Not to worry; we’ll split the loan 80/20 (80% being a 30yr fixed and 20% a HELOC home equity line of credit), as this will also help you avoid paying PMI.” Of course, with baby-in-arms, we jumped at the chance to own our first home.

Unfortunately for us, we were unaware of what a HELOC was and BoA didn’t provide any insight whatsoever into the pros/cons of such an arrangement. It goes without saying that we’ve come to regret this decision, six years later.

Like many who’ve written here, we have proven financial hardship. We’ve even worked with MakingHomeAffordable.gov which, in our opinion, was completely worthless, since the main recommendations included going to “CouponCabin.com” and spending less on groceries for our children. Yet, BoA refused to help us, when we presented all of the aforementioned to them, while seeking assistance to modify our mortgage or reduce our interest rate. The #1 killer: the HELOC – they REFUSED to even discuss it … but the BoA person we met with did admit (and we have this on recording) to the bank’s former dishonorable practices back in those days of pushing HELOC’s on unwitting and vulnerable customers like we were at that time.

We were forced to meet with a Foreclosure Lawyer who, fortunately, researched WITHOUT COST a variety of options for us (from simple to extreme), in regard to our housing situation. Once we choose a path, we’ll then need to retain their services to proceed, as expected.

Respectfully for statistics, I’d like to note that we’re a white, middle-class family with annual earnings of nearly $100k. Clearly, the banks have no interest in helping “us”.

A little common sense would have helped avoid this mess in these states. I know the banks have some responsibility here, but individuals have to take care of themselves and really be aware of what their financial picture is before buying an inflated priced home.

It just goes to show how misguided Federal Reserve monetary policy was to produce such a huge asset bubble, in this case with housing. Wonder what the next Fed induced bubble will be. The bond market perhaps?

Arizona is a mess. A big issue here was investors. There were entire subdivisions bought by CA investors that shortly thereafter were sitting 2/3 empty. Plus all of the single properties that were built and/or bought as investments.

My BIL bought two rental properties that he called “the college funds.” He’s still renting them out, but his kids will be long since out of college before he can sell them and break even, much less make a profit.

We were somewhat unwise and bought in 2005. (Isn’t that what you do after you get married? Buy a house? I was much less money savvy then, though not so long ago.) But we put 1/3 down and took out a 30-year fixed that cost about 1/4 of our monthly income at the time. (Our income, unfortunately, is much lower now, as we’ve both taken substantial pay cuts.) We were able to refi into a 25-year fixed at a lower interest rate 1.5 years ago (saved short-term on payments AND long-term on interest: win-win). House price now is about 50% of what it was when we bought it. We’ve actually already paid into it more than it’s currently worth.

I am genuinely sympathetic to those in this “pickle,” including if it’s their own doing (I have been the author of the vast majority of my own messes). However, overall, this period has had a positive affect for our nations financial health going forward.

When I was house shopping (pre-bubble in ’94), I used the old back-of-envelope measure of three-years annual salary, my real estate agent told me “oh, no one uses that any more.” I purchased in a “working class” neighborhood that ended up in “sub-prime central” — First I was shock at who was able to get loans and with what ease, then how quickly they abandon the houses (today there are probably few “underwater mortgages” on my block, mainly because of the many empty foreclosures three years ago). Playing with online mortgage calculators, fives years ago I was shocked at what it thought I could afford as well as what the monthly payments would be, but today, guess what, they are now programmed to come out just over three-years salary. I actually understand the mortgage products offered on my banks website.

It seems we’ve come full circle. After much innovation in the financial services and the repercussions therein, retail banking has returned to the tried and proven ways that existed through many housing cycles, until the beginning of the bubble when we “improved things.”

Doesn’t surprise me one bit that bubbles formed in areas with those outrageous loan ‘products’. It is clear to me that the borrowers were the product, the houses were the bait, and the mortgages were the trap.

“Negative amortization loans: where every month the outstanding principal balance increases…that is insanity. That is worse than an interest only loan. Negative amortization means you aren’t even paying the full interest charge each month!”

Yes, for awhile. Eventually, the negative amortization stops and the balance is recast over the remaining life of the mortgage. When that happens, the payment jumps substantially. Typically, these were “pick a payment” loans.

For example, a buyer takes a 500k negative amortization loan. The minimum payment might be 1% interest, or $416.67. The true interest rate however would be market rate, say 6%. So if the homeowner pays the minimum payment only, $2083.33 would be added to the mortgage balance that month. Typically, these loans would begin just that way, a minimum payment of only 1% interest the first 6 months or year. The minimum payment would rise over time, to 2%, 3%, etc. Again typically, 5 years in to the 30 year mortgage, the balance owed would be fully amortized over the remaining 25 years.

These loans actually worked well when prices were appreciating in the double digits each year. You buy a 500k home with nothing down, make your minimum payment each month, generally far less than the cost of renting an apartment. Two years later, sell the house at fair market value and walk away with 100k or so in your pocket, tax free. Go find another house and do the same thing.

Another popular loan was the sub-prime 2/28 ARM. An initial low interest rate the first 2 years, then 28 years of adjustable. Since these were for sub-prime borrowers, the rates were above market rate. You might get prime + 2%, with a lifetime cap of 7%. (That was common). So overnight, you might go from a payment based on 2% interest to a payment based on 8% interest.

But these loans haven’t been written in about 6 years at this point. The vast majority of people who are still sitting on their underwater mortgages don’t have this sort of loan.

Negative amortization loans: where every month the outstanding principal balance increases…that is insanity. That is worse than an interest only loan. Negative amortization means you aren’t even paying the full interest charge each month!

In Texas (where I live), it would be impossible for a bank to put someone in that type of loan — the state regulations simply forbid any mortgage like that. I believe standard ARMs are allowed. Refinances (cash back refinances) can only be done up to a maximum 80% LTV, according to Texas state law.

We didn’t see much of a bubble in texas, at least nothing like the states we’ve been talking about.

Not surprised to see Florida so high on the list. On my block 50% of the houses are either abandoned or going through the short sale/foreclosure process. The attitude of “not my problem my house dropped so much in value, I’ll just stop paying” is disgusting. Can’t tell you how many times I’ve heard people say it!

“Which makes my point. People couldn’t afford those price levels, so the banks created mortgage ‘ products’ to give people the impression that they could afford those prices.”

Certainly the availability of exotic mortgages made the price run-up possible. 40 year mortgages weren’t very popular here. They don’t really reduce the minimum monthly payment by much. What was popular were ARMs and negative amortization loans. We’re 6 years post-bubble now, so those loans have long since adjusted. People who opted for those loans have already gone through foreclosure and thus are no longer upside down.

“In 2005, only 3% of homes in the county were priced low enough for median-income families to afford.”

Which makes my point. People couldn’t afford those price levels, so the banks created mortgage ‘ products’ to give people the impression that they could afford those prices.

BTW: after the national news ran the story about that area being the marianna capital of the US, you might as well call the place Fukushima (I wouldn’t want to live there, regardless of how low the prices get).

Wow, I would have thought California would have been in the top 5. I guess it goes to show that the media over-hypes stories. Because of the news, I thought California was the worst. I never heard anything about Georgia, but it makes sense with the failed banks there. Granted, California is number 6, but the way the news reports, it’s surprising they are so “low”.

I am not doubting the California bubble. What I am saying is that there would not have been a bubble if the majority of people would have bought houses they could afford, with my metric being 15 year fixed mortgages. The compelling reason that the bubble formed was because those states allowed banks to create exotic mortgage ‘products’ like 40 year, interest only, etc type of mortgages because without those types of loans, people would not have purchased the houses at the insane price levels.

I would walk away from a house if I were that far upside down too. At the same time, be glad that values have fallen so you (and others) can have more affordable shelter. A bubble bursting is a _good_ thing.

Here is a newspaper article from the Modesto Bee, a local to me newspaper, which states the median home value in my county has fallen “nearly 65% since peaking at 396k in 2005”. Note that the article is dated 8/25/10, a year and a half ago. Prices have fallen further since.

Not only is it possible that homes in my area have fallen 70% from the peak of the bubble, its unfortunately exactly what has happened. I live in Stanislaus county, California. The county directly to the north of me is San Joaquin. The county directly to the south of me is Merced. Google it.

I did not state that my home value is 70% less than the outstanding principal balance. I did not own my home at the peak, and thus did not have a mortgage on my home at the peak. I bought in late 2007, put down 20% + closing + repair costs (it was a foreclosure when I bought) and am sitting now at 150% LTV. My home was worth 425k at the peak according to Zillow. I paid 231k. It is now worth 123k according to Zillow. Certainly sales in the area support Zillow’s estimates both at the peak and now.

So yes, a lot of people in this area found themselves owing 3 times what their homes were worth. Many of them walked, whether by choice or because they lost their jobs (unemployment rate is 17% in my county), I don’t know. But I don’t blame them. Being at 300% or so LTV is a terrible place to be.

I don’t know that I agree with you that homes in this area will NEVER be worth what they were in the third quarter of 2006, but I do believe it will be quite some time.

I am not surprised that 34.7% of Florida mortgages are underwater. In Orlando, it’s around 50% or more. Since the Florida Courts adopted new procedures to allow a different form of robo-signing to “prove” ownership, foreclosure lawsuits have surged again.

Hi Jonathan: “Negative Equity” is probably the proper term. In the US, the slang term is “being underwater”, as in: drowning in debt. Both mean that the outstanding principal balance is higher than asset value. The comment in #4 asserts that (their?) home asset value is 70% LESS than the outstanding principal balance, another way of saying that they owe 333% more on the house than it is worth…

61% in Nevada, that’s incredible! In the UK we call this negative equity, where the house is worth less than the outstanding mortgage owed on it. It’s such a shame that homeowners are facing increased levels of stress and anxiety as a result

A 70% drop in value can only happen if you live near Fukushima, or the vast majority of the people have mortgages that are NOT 15 year mortgages. I would bet the majority of mortgages were 40 year, no money down, interest only, balloon, or other type of bad mortgage ‘product’.

Anyhow, using your highly skeptical figure of being part of a 70% home value drop the day after signing a 15 year mortgage (and the price staying there forever) would take 11 years to be right side up again.

Who wants to have one of the basic tenets in life (shelter) have a high price tag? A good spot for home prices would be 1-2 times average yearly incomes.

I’m sorry you got caught up in a bubble, but I guarantee home prices will never go back to their peak (after adjusting for inflation). Just like tulip prices haven’t (nor ever will again) reach the maximum price levels set in the 1630’s Dutch Tulip Mania (after adjusting for inflation).

I too am surprised California is not higher on the list. Home prices in my area have dropped 70% since the bubble burst. (BG, it will take more than a year or two of 15 year payments to catch up with a 70% drop in value. You might want to check your math.) Part of the reason might be that so many homes have already been foreclosed or sold short. I would assume mortgages which have already been discharged are no longer considered underwater.

I am not surprised Nevada is on the list. Nevada has few towns, and the largest of those was a hot spot of speculation.

People wouldn’t be underwater if they were on typical 15 year fixed rate mortgage payment plans. And even if you are on a 15 year mortgage and somehow end up underwater, it would only take a year or two to be right side up again.

Let me guess: the states listed are also the states that allowed 40 year, interest only, balloon, or other types of really bad mortgage ‘products’.

Golden rule: if you can’t afford to pay the mortgage off in 15 years, you simply can’t afford the house.

California is a split bag – the coastal areas, where most of the businesses are, remain stable, the inner areas, largely dependent on construction, have been hit by a sledge hammer.

I’m stunned at the 61% figure for Nevada. We’ve been considering a retirement relocation to the foothills around Reno, but it appears we’d potentially be moving into ghost town communities. Very, very sad.

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